1
Q
define demergers
A
a process in which a company spins off one or more of it’s business units or divisions as seperate entities
2
Q
wha are the reasons for demergers?
A
- focusing on core business: offloading underperfomring units in theory should incresae profit margins, maximisaing return to shareholders
- **reducing the risk of diseconomies of scale ** (diagram) bringing LRAC back down to minimum point necause firm is too large and complex
- **raising money from asset sales ** jj
- ** defensive tactic to avoid attention from regulators **
3
Q
what is the impact of demergers on employees?
A
- uncertainity regarding job security: some positions may no longer be needed in new entities leading to potential layoffs (rationalisation)
- opportunities for personal growth and development: demergers can bring on new roles to take up, devleoping skills
4
Q
what is the impact of demergers on consumers?
A
- increased competition between the two new entities: long run lower prices and better quality
- loss of economies of scale: higher unit costs passed on down
5
Q
what is the impact of dermergers for the firm?
A
- higher returns/ coz more rationalized, streamline, efficent business
- financial cost of selling off assets at lower price
- Spun-off Entity: The spun-off entity may have the opportunity to thrive independently, potentially attracting new investors and partners. However, it may also face challenges in establishing its operations and management.
6
Q
define rationalisation
A
Reorganising production in order to increase productivity and efficiency.
7
Q
what is go to example for demerger?
A
ebay demerged from paypal in 2014
